March inflation slows to 2.4% on lower oil prices

CONSUMER prices grew at a slower rate in March from February and from a year earlier due to lower oil prices, which also pushed down housing costs and utility rates.

According to the Philippine Statistics Authority (PSA), headline inflation in March grew by a slower 2.4 percent from 2.5 percent in February and 3.9 percent in March last year.

But core inflation, which excludes volatile food and energy prices, inched up to 2.7 percent in March 2015 from 2.5 percent in February, but was lower compared to the 2.8 percent core inflation rate registered in the same period a year ago. It averaged at 2.5 percent in January to March 2015.

The headline inflation in March brought the year-to-date average to 2.4 percent, or within the central bank’s forecast range of between 2.1 percent and 2.9 percent for the month and 2.0 percent to 4.0 percent for the year.

Private analysts had forecast March inflation to range between 2.5 percent and 2.8 percent.

The PSA noted that the indices for housing, water, electricity, gas and other fuels; transport and communication continued to decelerate, while there was slower growth in all other commodity groups except in the indices for alcoholic beverages and tobacco; education; and restaurant and miscellaneous goods and services.

Lower food prices, primarily of rice and meat, also pulled down the headline inflation in March, according to the National Economic and Development Authority (NEDA).

“The easing annual growth rate of rice prices was supported by favorable total rice stocks inventory. Food inflation could have been lower if not for the relatively higher prices of vegetables and fish, which is due in part to the likely shift in consumers’ preferences given the onset of the Lenten season,” Socioeconomic Planning Secretary Arsenio Balisacan said in a statement.

Balisacan, who is also the NEDA director general, added that price reductions by local bread producers as transportation and production costs declined as a result of cheaper fuel, also helped in slowing the rise in food prices.

‘Low and stable’
“Inflation remained low and stable in the first three months of the year in line with expectations over the policy horizon, which is likely to support consumption growth,” Balisacan said.

The NEDA chief also noted that a relatively stable peso, given the country’s strong external position on the back of strong remittances, rising business process outsourcing earnings and foreign direct investment inflows, ample international reserves, and a manageable level of external debt contributed to stable domestic prices.

“The continuing decline in international oil prices is also a positive development for the country considering our dependence on imported oil,” he said.

Headline inflation in Metro Manila also decelerated to 1.9 percent in March from 2.2 percent in February and 2.9 percent in the same period a year ago. Outside Metro Manila, inflation remained stable at 2.6 percent, slower than the 4.2 percent recorded in the previous year.

Balisacan stressed that the government’s overall inflation outlook remains well-anchored as policies continue to be supportive of a stable inflation rate.

“While the current episode of a mild El Niño and power woes still pose risks to inflation, the continuing efforts to ensure that appropriate policy actions are implemented are expected to temper inflationary pressures over the near to medium term,” he said.

BSP still ‘watchful’
For his part, Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. pointed out that the March rate of 2.4 percent supports the view of within-target inflation over the policy horizon.

In a text message to reporters, Tetangco said that the BSP remains watchful, particularly of movements in commodity prices and any shifts in market sentiment due to geopolitical developments.

“At the moment, the view is that the stance of monetary policy remains appropriate, but we are ready to make adjustments as and if warranted,” he noted.

UK-based investment bank Barclays said that given the March inflation data, it expects inflation for the entire year to stay broadly within the central bank’s target range this year, with weaker food and energy inflation offset by firm core inflation.

“The BSP appears comfortable with its current policy stance, as although low inflation is leaving room to keep policy on hold, growth remains robust, making it unlikely that it will join other central banks in the region in easing policy,” it, however, said.

The investment bank also noted that the Philippines should be a significant beneficiary of lower oil prices, as it expects the country’s gross domestic product (GDP) to grow by 6.5 percent in 2015.

“We continue to forecast the next policy move will be a hike, most likely in the fourth quarter of 2015, after the Fed (US Federal Reserve) begins tightening,” the bank concluded.